Replacements

Example of replacement: 1035 exchange. Where the IRS allows you to make a tax deferred exchange from:

- A life insurance contract to another life insurance contract or an annuity contract - from one annuity contract to another annuity contract - but NOT an annuity contract for a life insurance contract.

What is a replacement?

A replacement is a transaction where a new life insurance policy for annuity contract is to be purchased and it is known or should be known to the agent that an existing life insurance policy or annuity contract has been or will be affected or changed because of the transaction.

Disclosure requirements

Even if replacement is not intended form 22190 titled "important notice replacement of life insurance or annuities" is required with every life insurance and annuity application.

If an Applicant answer is yes two questions to three or four they must

List each existing policy or annuity contract they are contemplating replacing. Both the applicant and the agent must sign form 22190.

Replacement rules do not apply to transactions involving life insurance policies or annuity contracts in the following categories:

- Credit life insurance - POP (premium offset plan) or partial POP - if a policy owner is surrendering dividends on an existing policy to pay premiums on the same policy and purchase as a new policy it will not be considered a replacement transaction -Group life insurance or group annuities where there is no direct solicitation of individuals by an insurance producer - term conversions (full or partial) - policies or contracts used to fund a pension plan, 401(a), 401(k), or 403 (b) plan, where the plan is maintained by an employer and is subject to ERISA - Policies or contracts used to fund a governmental or church plan (IRC Section 414) or a section 457 deferred compensation plan.

Consider the following when doing a replacement

- check to see if the current policy can be altered to meet their needs. - what's is the advantages and disadvantage is of replacing this policy. - always focus on the guaranteed cash values if showing illustrations. - The cost for the same coverage on the new policy may be higher since the premiums based on your clients current age and help the new policies cash values and dividends may initially be lower because of the cost of the issuing a new policy. - pointing out the tax implications.

Examples of replacement transactions

- existing policy is terminated. - The existing policy may continue as either a reduced paid up insurance or as extended term insurance as a result of a non-forfeit your benefits when premium payments are discontinued. - The existing policies change by reducing the face amount or term of coverage or is re-issued with a reduction in cash value. - policy values are withdrawn from existing life insurance policy or annuity contract by borrowing surrendering or making a partial withdrawal and the amount withdrawn is used to pay all or part of any premium on life insurance policy annually contract the term policy values includes cash and or dividends from life insurance policies and annuities.

Continued... Replacement rules do not apply to transactions involving life insurance policies or annuity contracts in the following categories:

-proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by New York Life or it's subsidiaries -existing term life insurance that is non-convertible and will expire within five years and cannot be renewed - if the new policy contract is a 1035 exchange from a maturing endowment policy and the exchange is dated on the maturity date, it will not be considered a replacement these transaction should always occur in maturity date to ensure that the policy owners credited with all policy values at maturity, including termination dividends if applicable.

Form 22190 - Important Notice Replacement Of Life Insurance Or Annuities- requires applicant to answer 4 questions.

1. Do you own an existing life insurance policy or annuity contracts? 2. Are you considering discontinuing making payments surrendering or forfeiting assigning to the insurer otherwise terminating your existing policy or annuity contract? 3. Are you considering using funds from your existing policies or annuity contract and pay premiums due on the new policy or annuity contract? 4. Is the life insurance policy or annuity contract for which you are applying to be the result of a 1035 exchange?

Replacement transaction that occur 13 months before or after application date for the new policy or annuity contract, it is considered

A replacement.

A partial surrender of an existing contract solely for the purpose of purchasing a new policy is not an example of a replacement. True or false

False - and example replacement is when a policy values are withdrawn from the existing policy by borrowing, surrendering, or making partial withdrawal and the amount withdrawn is used to pay all or part of any premiums on a new life insurance policy.

A client has a variable universal life policy that labs to five months ago because here she should not afford the premium. You become aware of the labs policy and sold the client a 20 year term policy. This is not a replacement. True or false

False- this is considered a replacement. A lapse policy occurring 30 months before or after the application date for the new policy or annuity contract is considered a replacement and should be included on the replacement disclosure form.

Some events that would be considered a replacement transaction are:

If your policy owner Alex POP (premium offset plan) or partial POP by surrendering dividends on an existing policy to pay premiums on the same policy, and purchase a new policy, it will not be considered a replacement transaction; however, if dividends are surrendered from one policy to apply towards a premium on a new policy, it is considered a replacement transaction.

All of the following are considered replacements, except: - The surrender value of existing policy is used to fund a new annuity contract. - The old policy was forfeited 11 months ago and a new term policies being issued. - A new policies purchase in an existing policy is replaced on POP. - A partial withdrawal is taken on an existing policy to fund new insurance policy.

It is not considered a replacement want a new policies purchase in an existing policy is placed on a POP.